What’s keeping the markets up in a down economy?
The “super rich,” according to a battery of new studies, as they find that stocks are the best investment in a time of low interest rates.
“The ultra-wealthy are looking for yield, and right now the average yield of a S&P 500 stock is over twice the average on a two-year CD,” financial adviser Ron Weiner told The Post.
“If you are just looking for some kind of dividend that pays more that a fixed-income CD, that search would drive you into buying relatively conservative stocks,” added Weiner, founder and CEO of RDM Financial Group.
“There are plenty of these kind of stocks in traditional, safe-yielding companies like AT&T, Johnson & Johnson and IBM,” he said.
The charge of the 1 percenters into equities has buoyed the anemic US equities markets, even as the New York Stock Exchange and others have seen lower and lower trading volumes.
Analysts calculate that the wealthiest 1 percent of American investors account for more than 50 percent of individually held stocks in the US.
But the average middle-class investor isn’t along for the ride. Except for exposure in 401(k)s, lower-income investors have fled the market in droves.
“No question, the middle class is getting pinched in their cash flow,” Weiner said. Any extra income usually goes not to day-trading but paying down debt.
The return of the super-rich to stocks might explain why an explosive equities market may be around the corner. Stock funds saw net outflows of $1.73 billion in the week ended Oct. 17, according to the latest report from the Investment Company Institute. That was the smallest withdrawal out of funds in 13 weeks. The previous week had outflows of $2.61 billion.
A UBS Wealth Management Americas (WMA) survey last week of individual investors — those with a minimum $250,000 in investable assets each; half having at least $1 million — confirms this sudden change.
The UBS survey showed that 35 percent of its US private clients are more optimistic about the 12-month economic outlook compared with 21 percent a year ago. With average cash holdings comprising about 20 percent of their portfolios, many respondents felt they had too much money in cash. Among high net-worth investors, 28 percent feel that way today compared with 18 percent a year ago. For less wealthy, but still affluent, investors, it’s 17 percent today versus 13 percent a year ago.
Another study, by Spectrem Group, of individuals worth at least a $25 million (excluding primary residence) also underscores the trend among super-rich investors.
These respondents typically own $7 million in stocks. A substantial proportion, 62 percent, are ready to invest in equities in the next year. In contrast, 38 percent planned to invest in fixed income, 19 percent in Treasuries and 26 percent in hedge funds.
“Clearly, middle-class investors are not in the stock market to the same extent as the very rich,” said Alois Pirker, an analyst at Aite Group.